Zombie Corporations and CERCLA Liability: Identifying, Reviving and Pursuing Zombie PRPs

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A Zombie Corporations and CERCLA Liability: Identifying, Reviving and Pursuing Zombie PRPs TUESDAY, APRIL 3, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: David Ashton, Assistant General Counsel, Port of Portland, Portland, Ore. Loren R. Dunn, Principal, Beveridge & Diamond, Seattle Christopher A. Rycewicz, Northwest Resource Law, Portland, Ore. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 1.

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5 Zombie Corporations and CERCLA Liability David Ashton Assistant General Counsel

6 Zombies: Reviving Defunct Corporations What we are going to cover: Raising money to help defray cleanup costs Focus on pursuing defunct corporations to reach insurance In states with favorable law on corporate asset marshalling and distribution and cleanup cost recovery on pre 1986 insurance policies First: what it takes to revive the corporation Second: what it takes to tap into their insurance Third: Practical issues important to success Wrap up: Q&A

7 Zombie Corporations and CERCLA Liability: Identifying, Reviving and Pursuing Zombie PRPs Strafford Webinars April 3, 2018 By: Loren R. Dunn

8 How Do Corporations Die? Orderly process of dissolution File articles of dissolution with state Give notice to creditors Distribute remaining assets Administrative dissolution Company fails to make annual registration with state No notice to claimants Essentially, everyone walks away Bankruptcy? 8

9 Dead? Or Dead and Buried? Dead = dissolved, but assets not completely (or formally) distributed. Dead and buried = dissolved, and assets apparently distributed. But, not quite! 9

10 Why Revive a Corporation? Recover assets! Property either late-discovered or not ever transferred Property wrongfully distributed Seek to recover from distributees Not very commonly pursued in environmental matters Often difficult to accomplish Property not transferrable / contingent assets Insurance assets 10

11 Why Revive a Corporation? To provide an orderly process for recovering assets To cause the corporation to secure nontransferrable or contingent assets: Insurance proceeds 11

12 How to Awaken the Dead? File litigation! Serve the defendant Last agent By publication Notify the (target) insurer(s) Seek appointment of a Trustee Petition to court Trustee to provide formal notice to insurer(s) Demand defense from insurer(s) Who pays the Trustee? 12

13 Even Zombies Deserve Lawyers Who is the client? Past officers / shareholders? Insurer? Trustee! How to deal with insurer defenses and reservations of rights Purpose of defense settle and terminate zombie 13

14 Who May Be Interested in Zombies? Parties performing cleanups who are in search of assets / contributions Insurers looking to share the defense / settlement with other insurers 14

15 Places to Look for Zombie Opportunities Property lease / rental records Vessel records Contractor records Port records State lands aquatic records Historical archives 15

16 Limitations State laws often limit the period for claims to brought following dissolution Can be challenging to overcome time limits to recover assets that were properly distributed pursuant to formal dissolution However, time limits are often not applicable if statutory dissolution process not followed Courts often allow late claims for contingent assets Privileged & Confidential Attorney-Client Communication 16

17 Settlements: Expectable Best Practices Court approval / consent to settlement Provides for proper dissolution of entity Exhausts insurance claims / proceeds Privileged & Confidential Attorney-Client Communication 17

18 Zombie Corporations and CERCLA Liability: Identifying, Reviving and Pursuing Zombie PRPs CHRISTOPHER RYCEWICZ TUESDAY, APRIL 3, 2018

19 Determining Historical Coverage Review Insured s History of Buying Liability Insurance Focus on Pre-1986 Comprehensive General Liability Policies Primary v. Excess/Umbrella Coverage Locating 20+ Year Old Policies is often challenging 19

20 Determining Historical Coverage Finding Lost Policies Interview Key Former Employees Review Financial Records Check with Insured s Current and Historic Insurance Brokers Research Claims History Contact Former Legal Counsel Hire an Insurance Archaeologist 20

21 Determining Historical Coverage Request Coverage History from Known Insurers Insurer's Statutory Obligations Specimen Policies Guidance Provided by Oregon Statute Proving Terms of Lost Policies Secondary Evidence of Coverage Initial Burden on Insured 21

22 Additional Insured Opportunities An additional insured (AI) is an entity that is named as an insured on the insurance policy issued to a separate entity. Being named as an AI is usually the result of a contractual requirement, such as a Port requiring that its subcontractors operating on the Port s premises name the Port as an AI. 22

23 Additional Insured Opportunities An AI usually results from a policy endorsement that will either name the AI by specific name or by a general description in a blanket AI endorsement. To determine the extent of coverage provided, you need to examine the specific language of the policy or AI endorsement. Often, a dispute will revolve around whether the AI provision covers the AI s independent actions, as opposed to potential liability arising from the ongoing operations of the named insured. This language was used in the mid-80 s in a standard ISO form. 23

24 Additional Insured Opportunities WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your work for that insured by or for you. 24

25 Triggering a Defense for Zombies Someone needs to pay for the defense. Defending pollution claims is expensive. A zombie often has no incentive to put up a defense to CERCLA claims. CGL policies impose two primary obligations on an insurer: the obligation to defend and the obligation to pay damages. Requiring an insurer to provide a defense raises the possibility that the insurer will be motivated to pay damages. 25

26 Zombies and Lost Policy Claims What is a lost policy? Who brings the claim? How to prove the existence, terms, and conditions of coverage? 26

27 Scope of Coverage Key Policy Language The insurer will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages by reason of bodily injury or property damage arising out of an occurrence. 27

28 Scope of Coverage All Sums Relates to Allocation Difference between Oregon and Washington Washington Joint and Several Oregon Pro Rata Legally Obligated to Pay Statutory Obligation Applies to Voluntary Cleanup Actions 28

29 Scope of Coverage Property Damage Third Party Property (e.g., adjacent property, groundwater) Threat of Damage to Third Party Property Triggers Duty to Defend 29

30 Scope of Coverage Occurrence During Policy Period Neither Expected Nor Intended Continuous Trigger Generally Applied in Environmental Context Multiple Occurrences Affect Calculation of Coverage Available 30

31 Applicable Exclusions Pollution Exclusion Qualified Pollution Exclusion (Pre-1986) Sudden and Accidental Subjective Intent of the Insured Absolute Pollution Exclusion (Post-1986) 31

32 Applicable Exclusions Owned Property Exclusion No coverage if damage is limited to Insured s property Groundwater considered Third Party Property Recovery of Soil Cleanup Costs 32

33 The Insured s Duties Notice Early and Often Effects of Late Notice Proving Terms of Coverage Initial burden on Insured Extent of the Coverage Policy Limits Policy Period 33

34 The Insured s Duties Proving Terms of Coverage (cont d) Applicability of Exclusions are Insurer's Burden Cooperation in Investigation of Claim 34

35 The Insured s Duties Duty to Defend Triggered by a Suit Complaint PRP Letter Other? Scope of the Duty to Defend Allegations in Complaint/PRP Letter Applies even where no Duty to Indemnify 35

36 The Insurer s Duties Duty to Defend (cont d) Covered Costs Attorney Fees and Costs Investigation-Related Costs Oregon Environmental Claims Statute 36

37 The Insurer s Duties Duty to Indemnify Scope of the Duty to Indemnify Relates to Damages Incurred by Insured Covered Costs Remediation Costs Attorney Fees and Costs Not Covered by Duty to Defend 37

38 Attorney Fee Recovery Strategies It is important to be able to recover prevailing party attorney fees. Many states recognize an insured s right to recover prevailing party attorney fees in a coverage dispute. Oregon has a statutory right contained in ORS

39 Christopher Rycewicz Northwest Resource Law PLLC 1000 SW Broadway, Suite 2300 Portland, OR

40 Zombie Corporations and CERCLA Liability David Ashton Assistant General Counsel

41 Zombies: Claims Management Issues Implement Follow the money strategy (FTM) Zombies one aspect Aggressively pursing claims in dissolution proceedings and probate Aggressively pursuing claims in bankruptcies Other funding sources?

42 Zombies: Importance of Due Diligence Use corporate successorship theories to pursue existing entities for predecessors liabilities To confirm a current obligation or Tap predecessors insurance Successor liability not unless: Express/implied assumption De facto merger Mere continuation Fraud to evade liability

43 Zombies: Importance of Due Diligence Due Diligence checklist: Proof of zombie status or successorship Proof of pre-1986 insurance Who controls the target assets? Favorable jurisdiction on corporate and insurance issues Resources to manage layers of specialized claims Expertise in: PRP claims, corporate law, insurance claims, debtor/creditor law, proving aging claims Receiver for zombie Funding to invest in claim

44 Zombies: Claims Funding Strategies Shared funding Common Interests PRP group Contingent/alternative fee arrangements Professional receivers/trustees Convince Government Agencies to pursue

45 Zombies: Managing the Claim Client expectations Early mediation Fee shifting mechanisms Critical success factors

46 Zombies: Avoiding/Minimizing Claims When liquidating: Implement state dissolution or bankruptcy procedures Notice List claims Disclose insurance as asset and use in claims resolution Goal of total claims resolution If not possible, establish claims trust